Payment by Documentary Bills

This is one of the simplest methods of payment. The exporters put together the following:
1 Bills for Collection form {see page 94) or remittance letter.
2 Draft drawn on the importers for the amount of money of the contract.
3 All the shipping documents.
These are airmailed to a bank in the importers' country which has the task of collecting payment from the importers.
Payment can be either immediate or after a period of time. If the terms of the contract are D/P{documents against payment) the exporters draw a sight draft. This means the collecting bank gets immediate payment from the importers when it presents the shipping documents to them. If, on the other hand, the exporters have agreed to give credit they use D/A terms (documents against acceptance). This means they draw a time draft which has to be accepted by another bank acting for the importers. The draft might be drawn 90 or 180 days after sight so the importers' bank has to pay the collecting bank three or six months after the day they receive the draft. An accepted draft is sometimes called a usance Bill.
The collecting bank charges the exporters for its services and the accepting bank charges the importers for signing acceptance of the draft (now a usance Bill of Exchange).
The exporters have to give instructions to the collecting bank (Section 7 of the form) what to do in case the importers dishonour the draft (i.e. refuse to accept or pay it). The collecting bank may protest the Bill. This means that banks and other companies dealing with them are informed about the dishonouring of the draft. (Note 3 at the bottom of the collection form advises the exporters to endorse the Bills of Lading in blank (see page 94), This means they can only write the name of the agent on the Bill of Lading in case the importers dishonour the draft. The goods can then be sold to somebody else or returned to the exporters.)

Source: articlesbase